A surge in exports and closures of outdated steel plants have boosted Chinese steel prices, bringing rebar prices within 5 percent of the record levels last seen in March 2004, the nation's top planner said. The National Development and Reform Commission said it expects prices to moderate through the end of the year.
"Measures to limit steel exports will be felt in the third or fourth quarter and macro-controls over real estate will be tightened, limiting steel demand," the NDRC said on its website (www.ndrc.gov.cn).
Chinese steel mills have hurried to export to beat a series of reductions in value added tax rebates on exports. Steel output slowed in July compared with June's record high, in anticipation of lower margins for exporters following the summer tax changes.
Nonetheless, steel production for the year is estimated to rise 15 percent to 490 million tonnes, outstripping a 12 percent rise in demand to 445 million tonnes and implying a further flow of exports - especially if the domestic market turns south.
The average price for four major types of steel products was up 15 percent in August compared with the year before, the NDRC said. The higher prices this year more than make up for the higher prices steel mills are paying for fuel and iron ore, which has hit record highs as Chinese buy Indian ore to stock up ahead of expected price rises next year.
Fixed asset investment, particularly in the real estate sector, slowed marginally in July compared with June but nonetheless remained up by nearly 27 percent in the first seven months of 2007.
The NDRC credited closures of outdated steel capacity with supporting prices, without mentioning how much new capacity had come on line. In a separate notice, it said China planned to shut 22.55 million tonnes of iron capacity and 24.23 million tonnes of steel capacity.
To date, ten top steel producing provinces had shut 43 percent of their targeted iron furnace closures and 36 percent of their targeted steel mill closures, the NDRC said. The targets were issued in April.
But the main factor supporting prices appears to be exports. Steel product exports surged by 92 percent to 39.7 million tonnes, while steel billet exports rose 75 percent in the first seven months of this year, to 3.6 million tonnes.
The tide of steel exports has led to increased trade tensions with the US, Mexico and Europe, while Chinese steel mills' investments to move up the value chain have displaced imports. Steel product exports fell 8 percent in the first seven months, to 8.5 million tonnes.